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Estate and gift taxes: What changes are coming in 2016?

Giving and receiving gifts plays a big role during the holidays, whether we are picking them out for loved ones or tearing off wrapping paper to open one for for ourselves. However, some of the most important gifts are those that cannot be picked up at the mall or unwrapped.

Giving or receiving large sums of money or properties from a loved one who is doing so for estate planning reasons is not uncommon during this time of year. Not only is it the holidays, but it is also the end of the year and people may want to tie up any financial loose ends to prepare for next year. However, there are some changes that are coming to federal gift and estate taxes that people across Florida should be aware of.

If you have been hesitant to make gifts or transfer properties because you are closing in on the current lifetime exclusion limit of $5.43 million, you will get some breathing room starting in 2016. This is because the exclusion amount for lifetime gift and estate tax credits will be increased by $20,000 next year.

However, the annual exclusion amount for gifts will not change. It is and will stay set at $14,000. This means that you can continue to gift up to $14,000 to individuals without that gift being taxable.

The tax rate for estate and gift taxes, if applicable, will also stay the same: 40 percent. 

Minimizing taxes and protecting loved ones from being saddled with enormous tax liabilities can be a crucial aspect of any estate plan, so it can be wise to have an understanding of when certain exclusions will or will not apply.

Federal and state tax laws can change every year, which is why it can be so important to regularly assess your financial decisions and estate plans. Because it can be extraordinarily difficult to keep up with changing laws on your own, it can be wise to consult an estate planning attorney. Failure to do so could lead to some expensive mistakes and consequences for both you and your loved ones.

Source: The Motley Fool, "Estate Planning in 2016: Here's What You Need to Know," Dan Caplinger, Dec. 11, 2015

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